The U.S. dollar declined on Tuesday as investors awaited more detailed labour market data in this week’s jobs report for August after data revealed that job opportunities in the country decreased in July.
The Japanese yen increased as well, rising from a 10-month low.
On the last day of July, the number of job postings, a gauge of labour demand, fell by 338,000 to 8.827 million, the lowest level since March 2021.
The data “have increased confidence that the FOMC will not increase rates at the upcoming September 19-20 policy meeting, and indeed, could be done,” according to analysts at Action Economics.
Although the U.S. economy has showed resilience in the face of increasing interest rates, investors are on the lookout for any indications that the monetary tightening is having any lingering effects.
Investors have increased their wagers that the Federal Reserve would increase rates further or maintain them higher for a longer period of time as it attempts to reduce inflation to a level closer to its 2% target while the labour market remains tight.
The odds of a rate hike by the November meeting have increased, but markets currently perceive an 87% chance of the Fed keeping interest rates unchanged next month.
The likelihood of a rate increase in November has dropped from 62% on Monday to 47% today, up from 46% a week ago.
In order to lower the still-too-high inflation, Fed Chair Jerome Powell suggested on Friday that additional rate rises may be necessary. However, Powell also pledged to proceed cautiously at subsequent meetings.
Markets are likely pricing in too many Fed rate cuts in 2024 relative to other central banks, according to Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, and traders repricing this probability might boost the dollar even more.
That seems to me that the dollar, at least in the immediate future, still has some room to run.
The dollar was last down 0.49% against a basket of currencies, trading at 103.51. It is maintaining below the 104.44 mark, which was the highest since June 1 and was attained on Friday.
This week, the attention will be on the U.S. personal consumption expenditures on Thursday and the August jobs reports on Friday for additional hints on the direction and health of the U.S. economy.
Earlier on Tuesday, the dollar temporarily rose to a nearly 10-month high versus the Japanese yen before falling in response to the jobs report.
Even as it gradually moves away from yield curve control, the Bank of Japan continues to stand out among global central banks due to its loose monetary policy.
At a very gradual and deliberate pace, Rai added, “it is moving away from excessively loose monetary policy.” To hold a dollar or yen short is still punishing.
The dollar recently traded at 145.84, down 0.47 percent on the day, from its high of 147.375 yen on November 7.
Traders are keeping an eye out for any indications that Japanese authorities will step in to support the faltering yen. Last September, when the dollar surpassed 145 yen, Japan intervened in the currency markets by purchasing the yen, which caused the pair to drop to about 140 yen.
Given the absence of currency-related remarks from Bank of Japan Governor Kazuo Ueda at the Jackson Hole conference and the lack of any verbal intervention as of yet, according to Charu Chanana, market strategist at Saxo, the fear of intervention has subsided at levels below 150.
The European Central Bank’s decision to raise rates at its September meeting may depend on the inflation numbers for the euro zone, which are due on Thursday. This decision might have an immediate impact on the currency.
According to Lee Hardman, senior currency analyst at MUFG, “We have the euro zone CPI report Thursday which the market is putting a great deal of weight on with the ECB’s decision in September seen as finely balanced.”